Long Term Stocks to Invest In: How Microsoft is Taking the Lead in AI Stock Market
Jan 04, 2024
After a massive decline of over 35% in 2022, the Nasdaq Composite index, known for its tech-heavy stocks, quickly bounced back up by 43% so far in 2023.
A major contributing factor to the current upward trend in the market has been the performance of the “Magnificent Seven” stocks, which have outpaced the broader market considerably. These stocks are:
- Nvidia (NVDA)
- Meta Platforms (META)
- Tesla (TSLA)
- Amazon (AMZN)
- Microsoft (MSFT)
- Alphabet (GOOGL)
- Apple (AAPL)
The term “Magnificent Seven” was originally used in reference to the classic 1960 Western film, “The Magnificent Seven,” directed by John Sturges. However, in 2023, Bank of America analyst Michael Hartnett coined the phrase to describe the seven companies that are recognised for their market dominance, technological impact, and influence on consumer behaviour and economic trends.
One common factor among these “Magnificent Seven” is their connection to artificial intelligence (AI), which is widely credited for fueling the current stock market rally making them long term stocks to invest in. With AI technology becoming increasingly popular and its potential to revolutionise various industries, investors have been scrambling to invest in AI stocks that have the best potential for growth.
Microsoft is one such AI-focused company, whose stock price soared in 2023. However, analysts believe that there could be much more to come for this tech giant.
Recent developments in AI technology have sparked renewed interest among investors. Specifically, advances in generative AI and large language models have found a vast audience due to their time-saving applications. Big tech companies, as well as start-ups, started investing heavily in the development and research of new AI systems, aiming to gain a foothold in this promising market.
Microsoft Leads the Race for Artificial Intelligence
Microsoft has also jumped onto the AI bandwagon by making a $13 billion investment in ChatGPT parent OpenAI. The company has since infused many of its flagship products with AI capabilities to increase productivity for users.
One of Microsoft’s most prominent AI-infused tools is Copilot, an assistant that is deeply integrated into the company’s popular software-as-a-service (SaaS) offerings. Copilot speeds up mundane and time-consuming tasks, making it a hit among users. In fact, in a recent interview, CFO Amy Hood stated that the next-generation AI business could potentially become the fastest-growing $10 billion business in Microsoft’s history.
Another key reason behind Microsoft’s success is its Azure Cloud platform, which is gaining market share from competitors like Amazon Web Services (AWS) and Google Cloud. In fact, during Microsoft’s fiscal 2024 first quarter, Azure Cloud saw a 29% increase in revenue, outpacing both AWS and Google Cloud, which had growth rates of only 12% and 22%, respectively.
Even more noteworthy is the fact that Microsoft attributed “roughly three points” of Azure’s growth to AI services, showcasing the company’s early entry and success in the AI stock market.
What Else Drives Microsoft’s Success?
While AI may be the headline-grabbing growth driver for Microsoft, there are other potential drivers that have been overlooked.
For instance, the company’s personal computing segment, which took a hit during the economic downturn, is recovering. With the worst behind, this segment is expected to make a comeback and contribute significantly to Microsoft’s overall revenue in 2024. PC shipments are expected to rise by 8% in the new year, according to market researcher Canalys. Moreover, the company’s software-as-a-service (SaaS) offerings are also poised for growth due to their integration with AI technology.
Currently, Microsoft stock may seem slightly expensive compared to the broader sector. However, considering its consistent and reliable performance, coupled with its strong presence in the AI market, Microsoft is well deserving of a premium and be one of long term stocks to invest in.